Question 1

When producers do not produce the eﬃcient amount of a product because they are unable to charge consumers what they need to do so, then there exists a

Accepted Answer

A)   demand-side market failure.
B)   supply-side market failure.
C)   competitive market.
D)   monopolistic market.E) A) and D)
F) All of the above

Question 2

Voters are making a choice to spend money on three projects: a dam, a school, or a road. In the choice between the dam and the school, the majority favors the school. In a choice between a dam and a road, the
Majority favors a dam. In a choice between a road and a school, the majority favors a road. These rankings
Indicate that majority voting may

Accepted Answer

A)   result in economically eﬃcient outcomes because of rent-seeking behavior.
B)   reﬂect irrational preferences.
C)   produce inconsistent choices.
D)   lead to consistent choices in spite of irrational community preferences.E) A) and C)
F) B) and C)

Question 3

The special-interest effect is one that yields

Accepted Answer

A)   private beneﬁts equal to external beneﬁts.
B)   large external beneﬁts compared to private beneﬁts.
C)   small economic losses to a small number of people and large economic losses to a large number of people.
D)   large economic gains to a small number of people and small economic losses to a large number of people.E) A) and B)
F) A) and D)

Question 4

Suppose American winemakers convince the federal government to issue a directive to serve only domestically produced wine at government functions. This would be an example of

Accepted Answer

A)   moral hazard.
B)   the principal-agent problem.
C)   logrolling.
D)   rent-seeking behavior.E) B) and D)
F) A) and B)

Question 5

The sometimes inconsistent results coming from a series of paired-choice voting is due to

Accepted Answer

A)   voters changing their preferences.
B)   irrational preferences among some voters.
C)   a normal consequence of majority voting.
D)   voters not having a good idea of their preferences.E) A) and B)
F) C) and D)

Question 6

Why is there a free-rider problem with public goods?

Accepted Answer

Once a producer has provided a public go...

Question 7

Assume that Matt, Joe, and Teresa are the only citizens in a community. A proposed public good has a total cost of $1,000. All three citizens will share an equal portion of this cost in taxes. The beneﬁt of the public good
Is $380 for Matt, $360 for Joe, and $200 for Teresa. In a majority vote, this proposal will most likely be

Accepted Answer

A)   accepted; the public good is produced, even though it is economically ineﬃcient.
B)   defeated; the public good is not produced, even though it would have been eﬃcient to do so.
C)   accepted; the public good is produced, which is economically eﬃcient.
D)   defeated; the public good is not produced, which is the proper outcome.E) None of the above
F) C) and D)

Question 8

Majority voting on whether or not a public good should be produced could lead to a result where a public
good whose costs are bigger than the beneﬁts would end up getting approved by the voters.

Accepted Answer

A) True 
 B)False

Question 9

Demand-side market failures refer to those situations when there is a shortage in the market because buyers
want to buy more than what is available in the market.

Accepted Answer

A) True 
 B)False

Question 10

(Last Word)  Given economic research on previous subsidies, should states and local governments subsidize corporate relocations?

Accepted Answer

A)   Yes, there is a 100% return on the taxpayer money spent.
B)   No, there is 0 percent return on taxpayer's money.
C)   Yes, it's always a good idea to attract new businesses to your state no matter how much it costs.
D)   No, there are low economic returns on these types of offers.E) None of the above
F) C) and D)

Question 11

Majority voting produces eﬃcient outcomes because it takes into account the strength of the preferences of
individual voters.

Accepted Answer

A) True 
 B)False

Question 12

Based on our study of market failure and government failure, the main conclusion that one should arrive at is that

Accepted Answer

A)   the market system is highly vulnerable to imperfections, and therefore the socialist system is a much better system to adopt.
B)   the government has much imperfection and creates a lot of ineﬃciencies; therefore, it is best to adopt a pure market system.
C)   it is best to always compare perfect markets against an idealized benevolent government that eﬃciently responds to the wants of society.
D)   we must carefully compare the beneﬁts of government intervention in our markets against the costs of such intervention.E) B) and C)
F) A) and D)

Question 13

The two main characteristics of a public good are

Accepted Answer

A)   production at constant marginal cost and rising demand.
B)   nonexcludability and production at rising marginal cost.
C)   nonrivalry and nonexcludability.
D)   nonrivalry and large negative externalities.E) All of the above
F) C) and D)

Question 14

Public choice theory focuses on the economics of

Accepted Answer

A)   ﬁscal and monetary policy.
B)   the behavior of business ﬁrms.
C)   antitrust and regulatory policy.
D)   government decision making, politics, and elections.E) A) and D)
F) B) and D)

Question 15

The paradox of voting is that under majority voting rules, the median voter decides the election outcome.

Accepted Answer

A) True 
 B)False

Question 16

Public choice economists contend public bureaucracies are ineﬃcient primarily because

Accepted Answer

A)   the value of public goods is more easily measured than is the value of private goods.
B)   of the absence of competitive market pressures.
C)   public sector workers are more security-conscious than are private sector workers.
D)   relatively low pay in government attracts workers of lesser quality.E) None of the above
F) B) and C)

Question 17

When congressional representatives vote on an appropriations bill, they must vote yea or nay, taking the bad with the good. This statement best reﬂects the

Accepted Answer

A)   paradox of voting.
B)   regulatory capture effect.
C)   beneﬁts-received principle.
D)   concept of limited and bundled choices.E) C) and D)
F) B) and D)

Question 18

The term government failure refers to the

Accepted Answer

A)   large losses suffered by publicly owned water, gas, and electric companies.
B)   large number of bankruptcies that have occurred recently among local governments.
C)   economically ineﬃcient outcomes caused by voting problems or incentive structures in government.
D)   inability of government agencies to provide adequate police protection in low-income neighborhoods.E) None of the above
F) C) and D)

Question 19

How does government determine the optimal amount of a public good?

Accepted Answer

The government must ﬁrst try to estimate...

Question 20

Which of the following is an example of a public good?

Accepted Answer

A)   a weather warning system
B)   a television
C)   a sofa
D)   a bottle of sodaE) All of the above
F) A) and D)

Exam 5: Public Goods, Public Choice, and Government Failure

The special-interest effect is one that yields

Correct Answer
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Correct Answer
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Demand-side market failures refer to those situations when there is a shortage in the market because buyers want to buy more than what is available in the market.

Correct Answer
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Public choice economists contend public bureaucracies are ineﬃcient primarily because

Correct Answer
verified

Majority voting on whether or not a public good should be produced could lead to a result where a public good whose costs are bigger than the beneﬁts would end up getting approved by the voters.

Correct Answer
verified

Public choice theory focuses on the economics of

Correct Answer
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When congressional representatives vote on an appropriations bill, they must vote yea or nay, taking the bad with the good. This statement best reﬂects the

Correct Answer
verified

(Last Word) Given economic research on previous subsidies, should states and local governments subsidize corporate relocations?

Correct Answer
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Correct Answer
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Which of the following is an example of a public good?

Correct Answer
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The term government failure refers to the

Correct Answer
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The paradox of voting is that under majority voting rules, the median voter decides the election outcome.

Correct Answer
verified

Suppose American winemakers convince the federal government to issue a directive to serve only domestically produced wine at government functions. This would be an example of

Correct Answer
verified

The two main characteristics of a public good are

Correct Answer
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Why is there a free-rider problem with public goods?

Correct Answer
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Once a producer has provided a public go...
View Answer

Majority voting produces eﬃcient outcomes because it takes into account the strength of the preferences of individual voters.

Correct Answer
verified

How does government determine the optimal amount of a public good?

Correct Answer
verified
The government must ﬁrst try to estimate...
View Answer

When producers do not produce the eﬃcient amount of a product because they are unable to charge consumers what they need to do so, then there exists a

Correct Answer
verified

Based on our study of market failure and government failure, the main conclusion that one should arrive at is that

Correct Answer
verified

The sometimes inconsistent results coming from a series of paired-choice voting is due to

Correct Answer
verified

Exam 5: Public Goods, Public Choice, and Government Failure

The special-interest effect is one that yields

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Demand-side market failures refer to those situations when there is a shortage in the market because buyers want to buy more than what is available in the market.

Correct AnswerverifiedShow Answer

Public choice economists contend public bureaucracies are ineﬃcient primarily because

Correct AnswerverifiedShow Answer

Majority voting on whether or not a public good should be produced could lead to a result where a public good whose costs are bigger than the beneﬁts would end up getting approved by the voters.

Correct AnswerverifiedShow Answer

Public choice theory focuses on the economics of

Correct AnswerverifiedShow Answer

When congressional representatives vote on an appropriations bill, they must vote yea or nay, taking the bad with the good. This statement best reﬂects the

Correct AnswerverifiedShow Answer

(Last Word) Given economic research on previous subsidies, should states and local governments subsidize corporate relocations?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following is an example of a public good?

Correct AnswerverifiedShow Answer

The term government failure refers to the

Correct AnswerverifiedShow Answer

The paradox of voting is that under majority voting rules, the median voter decides the election outcome.

Correct AnswerverifiedShow Answer

Suppose American winemakers convince the federal government to issue a directive to serve only domestically produced wine at government functions. This would be an example of

Correct AnswerverifiedShow Answer

The two main characteristics of a public good are

Correct AnswerverifiedShow Answer

Why is there a free-rider problem with public goods?

Correct AnswerverifiedOnce a producer has provided a public go...View AnswerShow Answer

Majority voting produces eﬃcient outcomes because it takes into account the strength of the preferences of individual voters.

Correct AnswerverifiedShow Answer

How does government determine the optimal amount of a public good?

Correct AnswerverifiedThe government must ﬁrst try to estimate...View AnswerShow Answer

When producers do not produce the eﬃcient amount of a product because they are unable to charge consumers what they need to do so, then there exists a

Correct AnswerverifiedShow Answer

Based on our study of market failure and government failure, the main conclusion that one should arrive at is that

Correct AnswerverifiedShow Answer

The sometimes inconsistent results coming from a series of paired-choice voting is due to

Correct AnswerverifiedShow Answer

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Once a producer has provided a public go...
View Answer

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Correct Answer
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The government must ﬁrst try to estimate...
View Answer

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Correct Answer
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Correct Answer
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